Obama's student loan profit machine
In his current term, the government may earn more than $110 billion from this program, more than the country's most lucrative companies.
The federal government will turn a tidy profit -- to the tune of more than $110 billion -- from student loans during President Barack Obama's current term, thanks to a form of arbitrage that's helping the government reap more in earnings than some of the country's most lucrative companies.
What's driving the government's profits from lending to students? It's the fact that while the Federal Reserve is maintaining rock-bottom interest rates, students are obligated to repay their loans at a rate that's three times as high. The Treasury, as the middleman, gets to keep the difference.
That will allow the government to book profits of about $35 billion in the current fiscal year from its loans to college graduates, according to estimates from the Congressional Budget Office.
On top of that figure, the agency on Tuesday said a credit adjustment will add an extra $15 billion in profit, partly because older loans had been more profitable than earlier forecast, given the Fed's continuing low rates. On paper, that means the government will profit by about $50 billion this year.
And it means the government's student loan program is more profitable than some of the country's most lucrative businesses, from Apple (AAPL), which posted a $41.7 billion profit last year, to Exxon (XOM), which had $44.9 billion in profit last year, as the Huffington Post points out.
The student loan program is expected to report several extremely profitable years to come, too. Until Obama leaves office, the government is forecast to reap more than $110 billion in profits from lending money to college students, according to the CBO's estimates.
What's interesting is that the money machine isn't expected to go on at these levels forever. Because the Fed is likely to raise rates as the economy stabilizes, the CBO projects that profits will shrink each year through 2023. By that point, the government may realize only $6 billion in student loan profits per year, give or take.
The moneymaking machine may lend support to Sen. Elizabeth Warren, D-Mass., and her argument that students should pay the same ultralow interest rate the Fed charges to banks, as reported Monday.
College grads currently pay 3.4% on federally subsidized Stafford loans, a rate that Congress set more than a decade ago, when rates were much higher than today's. The Federal Reserve discount rate is just 0.75%.
But with total student debt of more than $1 trillion, many people in their 20s and 30s are struggling to pay off their student loans while also pursuing dreams such as buying a home.
Follow Aimee Picchi on Twitter at @aimeepicchi.
It seems to me, that an educated nation is a stronger nation, and that these escalating costs are an enormous deterrent to seeking that education.
I don't mind. Without student loans I wouldn't have been able to get the education I have, and eventually the job that I have. And before anyone yells about saving and being responsible, let me tell you that I worked nonstop throughout my school years. I held two jobs in the summers and even took a year off from school scrimpting and saving every penny I could while working 12-13 hour days. I lived in a hole-in-the-wall my family members still tease me about and became friendly with ramen noodles and cereal. Despite all that, I still wouldn't have been able to do it as I graduated with a $59K loan.
However, considering that my undergrad and law school tuition was close to $150K in total (without including living expenses),I think I did pretty well.
I pay 6% on my loans with sallie mae, it does seem excessive when I can get a used car loan for 2-3%.
Though it's not hard to pay each month, I got a real degree (B.S.), not a lib arts degree.
So where is all this extra money going? I think I know. It will be going to support all the new entitlement programs that can be dreamt up by our government representative that have made a living out of so called government service.
All of my family members paid our loans off as agreed, why can we not collect the dollars that people owe for there education costs? I think I know why, we have incompetent people running the program, and there is no accountability to those that hired them.
I think it is great if there is really a profit. But I would sure keep and eye on where the money goes.
1)The Government can Garnish your Wages.
2)Not Paying can destroy your Credit Rating and potential employers can hold it against you.
3)It's not discharged in Bankruptcy.
It's not Obama's profit Machine, it's Congress's profit machine, they determine the rates, not Obama. The GOP want rates UP and the Democrats want rates DOWN.
Now in 2013, on July 1, rates are set to again Double. The GOP wants them to go up, Dem want's them stay down. Where do you think the political fallout will go this time around if rates go up. Exactly.
Obama campaigned about how important education is and how he was going to help them
and that how his Republican counter part didn't care about them and these fools belived him
Take it to the Supreme Court then they can re-write and call it a tax.
I am so sick of this government gouging We the People. Bad enough they have saddled our future generations with a near $17 trillion debt and growing but that wasn't enough damage to do to them. They decided to targeted vulnerable kids and use them to profit off of. They took over student loans so they could put a noose around their necks. They demonized the banks, steal their customers and pocket the money for themselves.
Wake up people! : |
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